Inflation deterring govt’s decision to hike fuel prices

Even as crude oil prices touched a 26-month high of $92 per barrel on Friday, the recent spurt in food inflation is coming in the way of the government’s decision to increase the retail price of diesel and cooking gas.

A senior oil company executive told HT that amidst growing concerns over rising food prices, the government is finding it difficult to allow aR2 per litre increase in diesel prices and the proposed R20-30 per cylinder hike in cooking gas prices. The government is losing R6-7 per litre on diesel and R275 on every cooking gas cylinder.

“Despite state-owned oil marketing companies incurring huge revenue losses on selling these products below market prices, there are serious concerns within the government over an immediate increase in diesel and cooking gas prices in the backdrop of high food inflation,” a senior petroleum ministry official said.

In June, the government deregulated petrol pricing and raised fuels prices, followed by another round of increase in petrol prices in early December. However, with soaring crude oil prices, revenue losses at oil marketers — Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum — on fuel sales in the current fiscal year are estimated to cross R70,000 crore even as official estimates put the figure at R66,000 crore.

The plan was to increase diesel and cooking gas prices ahead of the annual budget in February, an oil company executive said. However, any rise in fuel prices would stoke inflation, possibly to 8% in December from 7.48% in November and well above the Reserve Ban of India’s targetted 5.5% by March, he said.

“High food inflation of more than 14% may lead to headline inflation staying at elevated levels for some time. Raising diesel and cooking gas prices is therefore a matter of concern for the time being even as this needs to be tackled sooner or later.”

The government has offered a subsidy of $3.79 billion for the current fiscal year, about 1.5% of total expenditure, but over five times the budgeted amount and 15% more than a year ago.